What Are the Caveats Of Buying Directly Through The Listing Agent?

The choice of buying through the listing agent is usually based on long held assumptions about the benefits of purchasing that way.

Let's break the most common ones down...

MYTH NUMBER 1

This approach will save a buyer money. 

Perhaps it will save money, but if it does for anyone, it is the seller who saves money, not the buyer. The commission agreement that exists between the seller and listing agent was agreed upon long before a buyer enters the picture. If there is no collateral agreement in place (an agreement whereby the listing agent accepts a reduced commission should a buyer choose to offer through them), neither the buyer nor the seller saves a dime should the agent represent them both. The agent simply double ends and earns both commissions. Should a collateral agreement be in place (where the listing agent has agreed to reduce the commission should a buyer choose to offer through them), then the seller gets a break. Either way, there is no possible arrangement here that benefits the buyer financially.

MYTH NUMBER 2

An unrepresented buyer can offer less on a property.

This is also true, to a point. A value buyer looking for a deal, can offer a lower sticker price through the listing agent with a collateral agreement in effect, without affecting a seller's bottom line. But most buyers in this scenario, without a mitigating force of a trusted buyer agent, take this logic too far. One buyer I recently encountered at one of my listings for example, offered $1,499,000. The winning offer that came in days later was a represented buyer who came in at $1,550,000. The unrepresented buyer assumed that he should benefit financially from his lack of representation entirely (not to mention his lack of understanding of the visual value of going to $1.5 from $1.499). This buyer had no one to help him out of his own perspective. He didn't have a clue, so he never stood a chance. Reminding me that those who assume they don't need any help are usually the ones who need it the most.

MYTH NUMBER 3

a - Working with the Listing Agent gives a buyer the upper hand in a bid war. 

It is completely against the real estate code of ethics for a listing agent to reveal to their buyer customer or client the nature of the other offers. So an agent who tells you you’ll have an edge with information when you work with them directly is an unethical one. Period. 

b - Working with the Listing Agent gives the seller the commission break they're looking for creating another bid war advantage.

Even if there is a collateral agreement in effect, whereby the listing agent has agreed to take a reduced commission should he/she be bringing in their own buyer offer, there is typically a clause that erases that agreement in a competing offer scenario. Reduced commission and competing offers can make a heated situation explode. Quickly. So most sellers and listing agents prefer to forfeit the commission break in lieu of the clean competing offer process, removing any possible commission benefit.

MYTH NUMBER 4

Listing Agents know the house better than anyone else therefore a buyer working with them directly will be better informed.

While it is the listing agents job to know the house better than anyone else, it is not their job to share everything they know with the buyer. As a representative working in the best interests of the seller, it is not the job of the listing agent to offer due diligence advice and direction. They will also not disclose anything shared in confidence. Their job is solely to disclose material facts, sell the property (ie focus on the positive) and present an offer. Conversely, should the unrepresented buyer reveal anything to the listing agent that can later be used against them in a negotiation, the listing agent must disclose this to the seller. It is their fiduciary responsibility to the seller to do just that, in fact. It is then the buyer's job alone to look into the possible negatives, both latent in the property and neighbouring, not to mention, watch their words. The listing agent's existing contract with the seller automatically puts the buyer in this scenario at a serious disadvantage. 

MYTH NUMBER 5

Listing agents and neighbourhood specialists have keys to the secret for-sale houses.

While we all love the feeling of having the inside scoop, the assumption that a listing agent has the inside scoop on a neighbourhood's listings before hitting MLS is a fallacy. There is no single agent who owns a neighbourhood unilaterally, so the thought that they have the key to a secret inventory that isn't on the market yet really isn't possible. While it’s true that agents have the inside scoop on the homes they’ll be listing in the future, this isn't representative of what will be available in general. At most it may represent 10% of what is coming down the pipe, even for the mightiest of agents. Moreover, sellers are generally of the opinion in this market that to get their maximum dollar, they benefit from exposing their home to the open market. Unless there's something wrong with the house, or the buyer is willing to overpay, they are wary of back room, pre-emptive deals without proper exposure. And rightly so. 

MYTH NUMBER 6

It is easier and better for the listing agent and seller to deal directly with the buyer.

There's an assumption that it is a natural preference for the listing agent and seller to deal directly with the buyer. As if being an unrepresented buyer is easier. The logic goes that since seller and agent stand to make more money when working with an unrepresented buyer, it is in their natural self interest to want to do so. But it more often than not isn't the case, since there is absolutely nothing easier about it. Working with someone who is unrepresented means working with one who: isn't clear on the rules, isn't aware of the process, doesn't have equal access to information, isn't legally accountable, isn't insured. That buyer needs to be brought up to speed and informed by none other than the listing agent which takes time and energy away from the seller. Times that scenario by the number of buyers who plan to purchase a property in this manner and it can quickly quadruple the work of a listing agent. At a certain point, no amount of money is worth it to either the seller or the agent for the conflict of interest that it can create. Regardless of outcome, or personal gain, one thing is certain. It is never easier. 

MYTH NUMBER 7

Direct negotiations and conversations are more productive and controlled.  

Some buyers prefer a more direct approach than representation will allow. Especially those who are in the business of making deals, have a couple of real estate transactions under their belts, or just see themselves as masters of their own universe. The assumption here is that the buyer has skills that the Realtor probably can't match. The agent is really only involved as a proxy or shield, kind of in the way and diluting the effort. The buyer here chooses to forgo all insurance protection should an error or omission occur. They also hold their ability to be objective and un-emotional as Olympian. For those buyers, I'd like to introduce a classic book 'On Negotiation' written back in 1594. In it, Sir Francis Bacon's universal law of negotiation, supported to this day by the Harvard Negotiation Institute is the following: "It is better to deal by speech than by letter; and by mediation of a third party than by a man's self." 

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